West Qurna-2pumping at a rate of 1.8 million barrels a day by 2017

The euphoria that greeted the victory of Russia’s Lukoil and Gazprom Neft in Iraqi oil-field tenders at the end of 2009 has long since died down, and today the companies are grappling with the realities of keeping their projects on track and on time.

Aside from the infrastructure bottlenecks and red tape that challenge all international companies in Iraq, the Russian operators have their own special mountains to climb.

Lukoil President Vagit Alekperov said in New York last week that he doesn’t foresee any problems that could severely delay the company’s West Qurna-2 project in Iraq, although he has admitted that the schedule could slip by a month or a month-and-a-half. He attributed the delay to bureaucratic procedures, which he plans to discuss when he visits Baghdad later this month.

The most serious problem Alekperov will have to resolve is the need to relocate settlements of Iraqi people away from the field, regional experts say. Until they are moved off it, the West Qurna-2 consortium, which also includes Norway’s Statoil (18.75%) and Iraq’s state North Oil Co. (25%), cannot begin drilling on the acreage.

The drilling start-up is already being delayed because Iraq’s South Oil Co. (SOC) has failed to approve a contract awarded last year to US services giant Halliburton for exploration and appraisal wells (NC Feb.17,p3). Gazprom Neft is also waiting for the approval of its drilling contacts to grind through the bureaucratic channels.

Alekperov was quoted as saying last week that Lukoil hopes to complete all tender procedures in Iraq in the first half of the year and to produce the first 150,000 barrels per day from the field in 2013, rising to the targeted 1.8 million b/d in 2017. Gazprom Neft should start production at 15,000 b/d in mid-2013. Lukoil Vice President Leonid Fedun reportedly said Lukoil plans to invest $1 billion in West Qurna-2 this year.

According to Alekperov, Lukoil plans to have signed crude oil supply contracts by the time production begins from West Qurna-2, and talks with Chinese buyers are already under way. He said Lukoil would sell Iraqi barrels directly to customers who would refine the crude themselves.

However, the limited export, storage and pipeline capacity in Iraq is widely expected to hinder efforts by international oil companies to hoist the nation’s production to 12 million b/d by 2017, as stipulated by their service contracts.

Gazprom Neft is also likely to face infrastructure problems at its Badra field, in which it holds a 30% stake as operator, along with Iraqi partner Oil Exploration Co. (25%), South Korea’s Kogas (22.5%), Malaysia’s Petronas (15%) and Turkey’s TPAO (7.5%).

Gazprom Neft has to construct two pipelines from Badra: a gas pipeline to Baghdad to supply two power stations, and a 160 km oil pipeline to the Garraf oil field, operated by Petronas. Petronas is committed to building another pipeline from Garraf to Nasiriyah, which is eyed by the Iraqis as a future central hub for most crude oil flows.

Crude oil from the Badra field should flow either directly to Iraq’s main pipeline running across the country or via the Garraf or Nasiriyah facilities. The multiple possible outcomes leave Gazprom Neft with an unwelcome degree of uncertainty.

The Iraqi government has promised to install the necessary infrastructure by the time production at Badra starts in 2013, but market sources doubt it will be ready on time.

In the meantime, the oil pipeline from Badra to Garraf will be handed over to an Iraqi transportation company, which will be responsible for delivering the oil to terminals on either the Mediterranean Sea or the Mideast Gulf. Syrian Oil Minister Sufian Allaw says Baghdad and Damascus are talking about repairing an old oil pipeline to allow 200,000-300,000 b/d of Iraqi crude to be exported from the Syrian Mediterranean port of Banias by 2013.

Iraq’s relations with Iran are among the most sensitive of other concerns, especially for Gazprom Neft, whose Badra field in Iraq is a continuation of Iran’s Azar field in its Anaran Block.

Industry sources say there is no marked boundary and each state claims the rights to the area where Badra and Azar are located. Gazprom Neft insists it is working in cooperation with Iraqi and Iranian customers to ensure peace and stability at the border. Analysts say that simultaneous development of the two fields would help to avoid tension, but Gazprom Neft’s talks with Iran over participation in the Anaran Block have so far made little progress